Payroll Pays

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These packages help make a necessary chore profitable.

by Barry Knaster

Found on a sticky note attached to a CPA’s computer are these New Year’s resolutions for 2004:
1. Exercise more.
2. Lose weight.
3. Work less.
4. Evaluate and implement payroll processing software.

Partner Insights

While implementing payroll processing software for clients may not be first on your list of New Year’s resolutions, it certainly should be given serious consideration.

Each of your clients, regardless of employee size, industry, or yearly revenues, must pay its employees, remit taxes, and report earnings to the appropriate taxing authorities. The periodic processing of wages, quarterly preparation of payroll reports, and yearly printing of W2s are rituals as inescapable as listening to holiday music and munching candy canes.

For most clients, payroll processing is both an intimidating and onerous task; penalties associated with non-compliance can be severe. The administrative costs of maintaining an in-house payroll staff are often not cost effective. Payroll processing errors often occur: entering inaccurate earnings or exemption codes, incorrect coding of hours or deductions, or using outdated information. Employment laws continually get more complicated. Keeping up with the latest and greatest features of the many payroll processing software choices is a never-ending proposition.

So many cost-effective alternatives are available that an ever-growing number of clients are replacing in-house payroll with an outsourced solution. Some of these clients look to the super payroll service providers, such as ADP, Paychex, and Ceridian. But an increasing number look to their CPA firms to take over this enormous responsibility. The CPA firm is in an ideal position to capitalize on the wariness many firms have when it comes to doing payroll in house.

Why? Because their CPA is the client’s most obvious candidate for taking over the duties of payroll processing. They are already in a position of trust. They have other clients in similar industries with similar needs. They possess the technical know-how to effectively and profitably process payroll and monitor compliance with the taxing authorities. The CPA is not easily intimidated by the rigors of payroll compliance.

The payroll outsourcing revenue opportunity continues to expand at a rapid pace.

If your practice is considering expanding to include payroll processing services, your timing could not be better. The solutions available continue to improve in both breadth and depth, and are extremely cost effective. Implementing payroll effectively results in high billing rates and utilization percentages and low write-offs—a perfect combination.

Features do vary widely between the different products, so it is important to first determine your requirements. Begin by assessing your infrastructure comfort level. Both desktop and Web-based solutions are available—determine which of these fits best your technical environment. Is your firm capable of staffing the resources necessary for effective and profitable implementation of payroll processing?

Next, analyze the metrics of your client base. Review industry specifics to determine if special needs must be met. For example, if your firm specializes in the restaurant industry, tip capture and special reporting is mandatory. Sophisticated labor distribution is also critical to accommodate the many departments and jobs within a restaurant. The number of employees on the payroll is equally important. If typically processing for 50 employees or fewer, less-robust products will provide sufficient capability. For larger payrolls and complex earnings situations, custom fields and reports become a priority, as do ease of set-up and data entry.

Make it Easy

The ease (or difficulty) of company and employee set-up is a key consideration for choosing the write product. Set-up is the most time consuming aspect of implementing payroll, with numerous earnings, deductions, tax, and benefit codes to enter. The speed of entry directly impacts the profitability of providing this service. Since your firm will typically charge a flat fee for payroll processing, it is critical that the payroll workflow, from data entry to check printing, be as efficient as possible.

The ability to create a master company or employee template with default codes significantly speeds up data entry. Grouping employees by common type reduces the individual keystrokes necessary for set-up. Mass updating of fields, such as minimum wage amounts, also provide a more efficient environment. Most packages provide pre-defined earnings and deduction codes, but also allow the addition of custom codes. Tax tables for federal and state authorities are usually provided.

Most products offer multiple ways to enter employee time. These options will include timesheet-based entry, mass employee entry for similar earnings situations, imports from time clocks, and exception-based entry. The ability to edit gross and net pay information on the fly is also very important because mistakes will inevitably happen in every payroll. The ability to process multiple payrolls simultaneously also achieves economies of scale.

More complex clients require variety in paychecks and reports. Keep in mind that the output of the payroll processing function is the only part your client sees, so it is important to provide meaningful management and compliance reporting. Custom fields, fonts, and filters are essential in creating exception-based reporting. Grouping reports expedites processing. Query functions provide ad-hoc reporting capability. Report exports provide for additional data analysis.

One somewhat tricky area to evaluate is vacation, sick pay, and comp time. Accrual methods vary widely by company and by product, so carefully consider which payroll solutions provide this functionality. The tracking of fringe benefits can also be quite complex. Often, human resource software is necessary to properly track more complex accrual and benefit scenarios.

Standard features within any product should include direct deposit, MICR processing, magnetic media filing, and payroll tax form printing. Electronic processing of tax liabilities and payments will eventually replace the printing of tax forms. Most of the products reviewed already provide some of these capabilities.

Extra features include image capture of employee photographs, data export, integration with other accounting and financial applications, remote data entry, and limited human resource options. A few of the payroll vendors provide employee calendars and scheduling functions.

Most vendors offer demo products, so take them for a test ride. Carefully define your requirements before you choose the solution. Devote the necessary resources to provide a profitable niche for your firm. Also, consider future growth opportunities. As you take on clients with more employees and industry-specific needs, your requirements will increase in sophistication. Market this service to your clients; you will be surprised at its acceptance. Your clients will breathe a sigh of relief, thank you (and pay you!) for taking this burden off their hands.

PenSoft Payroll

PenSoft Payroll combines standard payroll functionality with ease of use. It allows the set-up of an unlimited number of companies, each with a capacity of 2,000 employees.

PenSoft

Norfolk, Va.
(757) 873-2976, press 1
www.PenSoft.com
Price: $1,999 (one to fifty employees); $799 (renewal).

Specific settings unique to each company create defaults for payroll set-up. These settings include minimum wage alerts, allowing negative or zero net pay, automatic updates of overtime pay rates and last raise dates, and employee group usage. Employee groups are used for various functions like entering payroll data and printing checks. The income list provides defaults of the most common pay types and allows new types to be added. Income calculations include hourly rate, piecework, annual salary, fixed and variable amounts, and percent of sales. Special-use income types include tips, fringe benefits, non-taxed reimbursements, and third-party sick pay. Deductions are based on percentages, fixed or variable amounts, hourly rates, or tip matching.

PenSoft Payroll maintains an extensive set of data for each employee. Creating a default employee allows the reuse of income, taxes, and deductions. You can search for employees by last name, first name, Social Security number, or employee number. Employee notes can be used to store specific user-defined information. Worksheets are available to help gather payroll-specific data before it is entered. Department and job costing codes segregate the company and employees into smaller units for reporting purposes.

New payroll records are created in several different ways. Individual employee entry is the most flexible and complex method. Batch mode allows the entry of data for all employees at once. The clone-previous-data method uses pay records from a previous pay date. Timesheet data entry provides a means for entering hours worked on a daily basis, rather than having to enter total hours worked for the entire pay period. You can also import payroll data from an external source.

Multiple check and direct deposit formats are supported. PenSoft Payroll generates a wide variety of reports capable of customization. These include pay date, management, and department reports. Sort and filter options are extensive. Most reports are exportable to an ASCII text file as well as numerous other accounting programs.

PenSoft is a fit for firms needing an out-of-the-box solution requiring minimal set-up and configuration. It provides a great entry-level solution for first-time users.

Industrial Strength Payroll

In terms of sheer capability, Industrial Strength Payroll reminds me most of the service bureau products of old, but its customizable browser-like interface provides modern navigation.

Industrial Strength Payroll

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